The zloty index by Cinkciarz.pl. June 2015. Part 2

03.06.2015 10:03, author:

Piotr Lonczak

In May, the weakening zloty was improving the competitiveness of export on almost every market. Even though the advantageous tendency for the exporters lasts from the beginning of spring, in long perspective the Polish currency still remains relatively strong in relation to the currencies of the most important trading partners.

Detailed description of the indexes

Most important trading partners (wide index): The Cinkciarz.pl MAJ_33 index

In May the nominal Cinkciarz.pl MAJ_33 index was higher by 2 percent in relation to the last year. The situation has therefore improved in relation to the two previous months, when it was respectively 2.1% and 2.8%.

Also the real index shows that we are dealing with a period of improvement of the Polish export's competitiveness. In May the index which included the differences in inflation was by 1.4 percent lower in relation to the previous year.

Diagram: The MAJ_33 index

Diagram: The real MAJ_33 index

However, a certain improvement of the situation in recent months does not change the fact, that the zloty remains strong in relation to the currencies of Poland's most important trading partners. In previous month the MAJ_33 index reached the highest level since April 2010.

Diagram: Change of indexes (year to year)

Diagram: Change of indexes (month to month)

Although the real index does not indicate the zloty to be so strong, it still is relatively high. From the beginning of the year the index remains close to the highest level since mid 2014.

Diagram: Export to the MAJ_33 countries year to year (in percent); Data: GUS; Analysis: Cinkciarz.pl

In 12 month period finished in March 2015, the export on the markets of 33 most important trade partners increased by 4.2 per cent in relation to last year. This means an acceleration in relation to the previous months. Contribution of the most important trading partners was 90.7 percent in general export. There were no changes in comparison to the previous month.

Most important trading partners (tight index): The Cinkciarz.pl MAJ_16 Index

In May, the nominal Cinkciarz.pl MAJ_16 Index was by 2.2 percent higher than last year. The situation improved even more in relation to the MAJ_33 index – in previous months it was respectively 2.7% and 3.1%.

Also the real index indicates, that we are dealing with a period of the Polish export's competitiveness improvement. In May the index which includes the differences in inflation, was lower by 1.5 percent in relation to last year.

Diagram: the MAJ_16 index

Diagram: the real MAJ_16 index

Just like in case of the MAJ_33 index, the MAJ_16 index keeps close to the highest level for a few years. In first part of the year, the index reached the highest level since 2011.

Diagram: Change of the indexes (year to year)

Diagram: Change of indexes (month to month)

The real index does not show as high levels. However, it allows to observe the zloty's appreciation that lasts since the beginning of 2012.

Diagram: Export to the MAJ_16 countries year to year (in percent); Data: GUS; Analysis: Cinkciarz.pl

In the 12 month period finished in March 2015, the export on the markets of Poland's 16 most important trading partners, increased by 4.6 percent in relation to the previous year. Tempo of the growth remained on the same level as in previous months. Contribution of the most important trading partners included in the tight index, was 75.6 percent in general export – without changes in comparison to last month.

Crucial trading partners: The Cinkciarz.pl MAJ_7 Index

In May the nominal Cinkciarz.pl MAJ_7 Index was by 1.9 percent higher in relation to last year. The situation improved even more in relation to the MAJ_33 index – in previous months it was relatively 2.5% and 2.8%.

Also the real index indicates that we are dealing with a period of improvement of Polish export's competitiveness. In May the index which includes differences in inflation, was lower by 1.3 percent in relation to last year.

Diagram: Index MAJ_7

Diagram: Index MAJ_7 Real

Just like in case of MAJ_33 and MAJ_16 indexes, the MAJ_7 index remains close to the highest levels for many years. In the first part of the year, the index reached the highest level since 2011.

Diagram: Change of indexes (year to year)

Diagram: Change of indexes (month to month)

The real index does not indicate as high levels. However, it shows quite well the appreciation of the zloty which lasts since the beginning of 2012. Although the scale of this phenomenon is smaller than in case of the wider indexes.

In the 12 month long period finished in March 2015 the export on the markets of 7 most important trading partners increased by 5.3 percent, in relation to the previous year. The tempo of growth decreased in relation to the previous month, when it was 5.4 percent. Participation of the crucial trading partners included in the index, was 54.3 percent in the general export – without changes in relation to the previous month.

Countries of the central-eastern Europe: the Cinkciarz.pl CEE Index

In May the nominal Cinkciarz.pl CEE Index was higher by 12.6 percent in relation to last year. The situation improved significantly, when it comes to the period between December and February. Back then it was definitely over 20 percent.

Diagram: The CEE Index

Diagram: The real CEE Index

Despite a visible improvement of competitiveness, the zloty's strength in relation to the CEE countries' currencies, will remain a significant obstacle for the exporters in forthcoming months. In case of the real CEE index, we are also dealing with calming down of the situation, after a strong deterioration of price competitiveness in the period between December and February.

Diagram: Change of indexes (year to year)

Diagram: Change of indexes (month to month)

In May, the CEE index decreased in relation to the previous month. This tendency is lasting for three months. This shows that the situation is gradually improving after the currency crisis in Russia and Ukraine.

Diagram: Export to the CEE countries year to year (in percent); Data: GUS; Analysis: Cinkciarz.pl

For five months the export to the markets of central-eastern Europe countries, is experiencing a negative dynamics. In twelve month long period finished in March, the decrease was 3 percent in relation to the same period last year. Scale of decreases is getting bigger and bigger every month. Participation of the countries from central-eastern Europe dropped from 23.3 percent in March, to the 22.8 percent.

Countries of central-eastern Europe (with exclusion of the countries in crisis): the Cinkciarz.pl CEE_NO_CR Index

In May, the nominal Cinkciarz.pl CEE_NO_CR Index was higher by 2.5 percent in relation to last year. This index does not include the countries experiencing the currency crisis – Russia, Ukraine and Belarus. Thus, in relation to previous month the situation improved (in April the dynamics was 3.4 percent).

Diagram: the CEE_NO_CR Index

Diagram: the real CEE_NO_CR Index

One look at the CEE_NO_CR index from the long perspective shows that currently the zloty is very strong in relation to the other currencies in the region. It is currently on the highest level since 2009. It shows that the currency crisis in Russia, Ukraine and Belarus is not the only reason for decrease of the Polish export's competitiveness in the region.

Diagram: Change of indexes (year to year)

Diagram: Change of indexes (month to month)

Similar tendencies are shown by the real CEE_NO_CR index. Even when including the differences in inflation, it shows that in recent years it was significantly enforced in relation to the region's currencies.

Diagram: Export to the CEE_NO_CR countries year to year (in percent); Data: GUS; Analysis: Cinkciarz.pl

In twelve months long period finished in March, the export on the markets of central-eastern Europe (excluding Russia, Ukraine and Belarus) increased by 7.5 percent 9in relation to the previous year. It's a better result than 7.3 percent in previous month. Participation of countries from this basket in general export, was 16.2 percent – without changes in relation to previous months. Even though the tempo in which the export to the central-eastern European countries increases is relatively high, the dynamics remains very humble in relation to past years.

Scandinavian countries: The Cinkciarz.pl SCAN Index

In May, the nominal Cinkciarz.pl SCAN Index was by 4.4 percent higher than in relation to last year. The situation slightly improved in relation to April – back then the dynamic was 6.1 percent.

Diagram: SCAN Index

Diagram: the real SCAN Index

The SCAN Index shows that the zloty is currently very strong in relation to the Scandinavian currencies. The zloty is currently at the highest level in relation to them, since 2010. Deterioration of competitiveness took place especially in recent months.

Diagram: Change of indexes (year to year)

Diagram: Change of indexes (month to month)

The same tendencies are shown by the real SCAN index. Competitiveness of the Polish export on these markets, has deteriorated especially in recent quarters.

Diagram: Export to the SCAN countries year to year (in percent); Data: GUS; Analysis: Cinkciarz.pl

In twelve month long period finished in March, the export on the markets of Scandinavia decreased by 1.7 percent, after decreasing by 2.8 percent one month earlier. Participation of these countries in general export went down to 6.7 percent – without changes in relation to previous month. The exporters' difficulties were very intensified by deterioration of price competitiveness on the Scandinavian markets.

The Emerging Markets: Cinkciarz.pl EME_NO_CR Index

In May, the nominal Cinkciarz.pl EME_NO_CR Index was by 5.5 percent lower in its relation to last year. The situation deteriorated in relation to April – on that month the dynamics was minus 6.8 percent. This index includes the Emerging Markets countries, along with Russia and Ukraine.

Diagram: the EME_NO_CR index

Diagram: the real EME_NO_CR index

The EME_NO_CR Index shows that the zloty is currently very weak in relation to the Emerging Countries' currencies. The price competitiveness on those markets is consequently improving since 2010. This situation is not significantly changed by the fact that the EME_NO_CR index is growing for two months.

Diagram: Change of indexes (year to year)

Diagram: Change of indexes (month to month)

Identical tendencies are shown by the real EME_NO_CR index. However, the scale of improvement of competitiveness is clearly bigger.

Diagram: Export to the EME_NO_CR countries year to year (in percent); Data: GUS; Analysis: Cinkciarz.pl

In twelve month long period finished in March, the export to the Emerging Markets increased by 8.8 percent, after increasing by 8.4 percent one month earlier. Participation of these countries in general export remained the same, which is the level of 10 percent. The improvement of price competitiveness on the Emerging Markets reflects in the increase of the export.

According to the classification of the International Monetary Fund, the Emerging Markets include also Russia and Ukraine. We do not include them in our analysis due to their economic difficulties, because of which the shape of the EME index has been very disturbed. Calculations which contain these countries, are presented in the report's conclusion.

The export's potential is limited by the strong zloty

For three years we are dealing with the consequent enforcement of the zloty, in relation to the currencies of Poland's most important trading partners. Such situation can be disadvantageous for the export, and stop the expansion of our companies on the new markets.

If we are looking at the Polish export's competitiveness through the perspective of the zloty's index made by the Bank of International Settlements (the BIS index), it is difficult to speak of too big appreciation of the Polish currency. Although, if we will look at the same problem from the perspective of the Ciknciarz.pl index of the zloty (the CKPL index), we will see that we are currently dealing with a period of the strong zloty.

Diagram: the CKPL index and the BIS index since 2006 (indexes are in the real interpretation ); Analysis: Cinkciarz.pl; Data: Bloomberg, BIS

Different behaviour of the indexes is the result of the fact that the CKPL index does not include the trade with the third party countries . Unlike the case of the BIS index, the CKPL index concentrates on measuring the Polish economy's competitiveness only in direct trading contacts. The consequence is a lower significance of the EUR/PLN rate (relatively stable in recent years) in the CKPL index, than in the BIS index.

Third year of increases

The CKPL index shows a consequent appreciation of the zloty. This situation lasts since the beginning of 2012. Thus, we are entering the third year of increases of the Polish currency's rate in relation to the currencies of the most important trading partners.

Decomposition of the index highlights the scale of the problem even more. Below you will find the indexes measuring the price competitiveness of the Polish economy in relation to the most important trading partners: the wide index (MAJ_33), the tight index (MAJ_7), the central-eastern European countries index (CEE), the Scandinavian countries index (SCAN), and the Emerging Markets index (EME_NO_CR).

Diagram: list of the CKPL index for the chosen baskets of countries; Data since 2012; 2012 = 100; Analysis: Cinkciarz.pl

The chart below shows the participation of particular baskets in the general export. Participation of the central-eastern European countries is slightly lower than Germany's. Even when excluding Russia, Ukraine and Belarus – which are the countries experiencing the currency crisis – this direction has a great significance.

Basket

Share in March 2015 (in percent)

Change of export year to year in March 2015 (in percent)

Change of the real index year to year in March 2015 (in percent)(w proc.)

MAJ_33

90.7

4.2

-1.6

MAJ_16

75.6

4.6

-1.3

MAJ_7

54.3

5.3

-1.3

CEE

23.3

-3

6.2

CEE (without RU, BY, UA)

16.2

7.5

0.2

EME

16.8

-4.6

0

EME (without RU, UA)

10

8.8

-10.7

SCAN

6.7

-1.7

2.5

Germany

26.4

8.6

0.1

The export grows increasingly slower

In 2014 the trade in the central-eastern European region has been limited, due to the crisis in Ukraine and its consequences, which were the sanctions applied to Russia. However, even if we will exclude the countries experiencing the greatest economic difficulties from the CEE basket, we will observe that we are dealing with increasingly slower growth of export, in relation to the tempo from before 2012.

Diagram: Change of export year to year for the selected baskets of countries; Data since 2006; Analysis: Cinkciarz.pl; Data: GUS

This phenomena begun at the turn of years 2011 and 2012. From that moment on, we are also observing a progressive appreciation of the zloty (it is pictured on the diagram entitled: List of the CKPL indexes for the selected baskets of countries).

The German dependency

The Polish economy is strongly related with the German economy. This phenomena itself is not negative. However, too intense dependence from one trading partner is not an effective solution from the perspective of the country's economic policy. Searching new markets for the Polish export should be a part of macro caution, directed on diversity of the trading partners.

We are currently dealing with a decrease of contribution of the central-eastern European countries in the export, and also another increase of Germany's contribution. The tendencies were different yet in 2012.

Significance of the zloty

The phenomenona described here have a great significance for the export orientated enterprises. Currently we can observe a deterioration of competitiveness of companies in the central-eastern European countries. These markets as a whole match the size of Germany, which is Poland's biggest trading partner. This situation is not visible, if we observe the changes on the zloty's rate from the perspective of wide indexes, like for example the BIS index.

Explaining the tendencies occurring in the foreign trade only from the perspective of the zloty's rate, would be an excessive simplification. However, the currency rate is a very crucial factor. Among the other elements, it has a relatively big significance.

Cinkciarz.pl begins a publication of monthly reports regarding the analysis of the Polish export's competitiveness on the global markets, from the perspective of currency rate. We hope that our analysis will appear helpful in following and understanding changes, which occur in the foreign trade.

Clarification regarding the data:

Calculations of the Cinkciarz.pl indexes are based on changes in rates of currencies of Poland's most important trading partners, in relation to the zloty. Significance of particular currencies is estimated with the use of the GUS data regarding the foreign trade. Significance is calculated on the level of countries' baskets consisting of Poland's 33 biggest trading partners. The real indexes include a difference in inflation between Poland and its most important trading partners.

The list of Poland's 33 most important trading partners consists of those countries, which contribution in export and import was higher than 0.5 percent within recent 10 years. Those countries create the widest of Cinkciarz.pl indexes. Export to the countries from the MAJ_33 basket, crosses 90 percent of the general export.

Data regarding the currency rates is supplied by Bloomberg. Data regarding the foreign trade is provided by the Central Statistical Office (GUS). In case of the countries from the European Union, data about inflation is supplied by the Eurostat. Data about inflation regarding other countries is provided by the national statistical offices.

For more detailed information regarding the methodology and selection of the countries to particular currency baskets, please contact Piotr Lonczak, the Cinkciarz.pl Analyst.

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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